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Posts Tagged ‘Argentina’

It doesn’t get as much attention as basket-case nations such as Venezuela, North Korea, Zimbabwe, or Cuba, but Argentina is one of the world’s worst-governed nations.

Though the most damning indictment, in my humble opinion, is that Argentina in the late 1940s used to be one of the world’s 10-richest nations.

But beginning in 1946 under Juan Peron’s statist presidency (much beloved by Pope Francis for inexplicable reasons), policy shifted to the left and Argentina become one of the world’s least market-oriented nations.

Not surprisingly, the country’s relative living standards then began a steady decline, thus providing us with a painful lesson that rich nations that adopt bad policy don’t remain rich.

Recent history hasn’t made things better. Populist-left governments were in charge from 2003-2015, followed by an ineffective right-reformist government (akin to Nixon-Bush-Trump-style Republicanism) from 2015-2019, and now the left is back in charge.

But one thing that hasn’t changed is that Argentina has bloated, corrupt, and ineffective government.

Here are some details from a column that wrote last September for Project Syndicate.

Argentina has fallen back into crisis for the simple reason that not enough has changed since the last debacle. …Argentinian authorities succumbed to the same temptation that tripped up their predecessors. In an effort to compensate for slower-than-expected improvements in domestic capacity, they permitted excessive foreign-currency debt, aggravating what economists call the “original sin”: a significant currency mismatch between assets and liabilities, as well as between revenues and debt servicing. …Undeterred by Argentina’s history of chronic volatility and episodic illiquidity – including eight prior defaults – creditors gobbled up as much debt as the country and its companies would issue… The search for higher yields has been encouraged by unusually loose monetary policies… Then there is the IMF, which readily stepped in once again to assist Argentina… So far, Argentina has received $44 billion under the IMF’s largest-ever funding arrangement.

This latest bailout is a classic case of throwing good money after bad, which seems to be the IMF’s primary purpose – especially with regards to Argentina.

Later that same month, Anne Krueger weighed in with another column for the same publication.

Argentina is…chronically overspending and over-regulating until it is forced to go to the International Monetary Fund for a new round of treatment. In 2001, the country suffered a major crisis, and…entered into an IMF loan program. But its debt restructuring was messy, and policies to address its underlying structural problems – lowering trade barriers, allowing public-utility prices to rise – were pursued halfheartedly or not at all. …government spending and fiscal deficits began to increase once again. Consolidated public expenditures rose from a low of 22.9% of GDP in 2002 to 30.1% of GDP in 2008, and to 42.2% in 2015. …For an economy as distorted as Argentina’s, there is no medicine that can prevent a period of painful adjustment. …By early 2018, Argentina was in another crisis. …in June 2018 the IMF approved a $50 billion loan program, the largest in the Fund’s history. …The problem, once again, is that the medicine was not strong enough. At the patient’s insistence, the measures were too mild to be effective, and more difficult structural reforms were delayed. …the country needs structural reforms, especially a further reduction in the size of the government sector, starting with pensions. More gradualism will only prolong the pain and allow political opposition to mount.

Ms. Krueger is correct. Only good policy will cure Argentina’s woes.

Sadly, bailouts actually undermine that goal give the country’s awful politicians an excuse to postpone necessary reforms.

Though there is a silver lining to the dark cloud of Argentine statism. James Pethokoukis of the American Enterprise Institute pointed out earlier this year that we now have a real-world example of democratic socialism.

…the Nordic nations are “firmly rooted in capitalism and free markets,” wrote Michael Cembalest of JP Morgan Asset Management in a note last summer… The closest Cembalest could find to a true democratic socialist state, at least by his definition, is Argentina, “which has defaulted 7 times since its independence in 1816, which has seen the largest relative standard of living decline in the world since 1900, and which is on the brink of political and economic chaos again in 2019.” …Argentina met most of the following criteria: a) higher personal and corporate tax rates, and higher government spending; b) more worker protections restricting the ability of companies to hire and fire, and less flexibility for companies to set wages based on worker productivity and/or to hire foreign labor; c) more reliance on regulation, more constraints on real estate development; d) more anti-trust enforcement and more state intervention in product markets; and a shift away from a shareholder-centric business model; e) protections for workers and domestic industries through tariff and non-tariff barriers, and more constraints on capital inflows and outflows.

Not exactly a ringing endorsement of so-called democratic socialism.

If you prefer hard data, this chart shows that Argentina has the world’s worst economic performance over the past 100 years.

And I imagine the country would look even worse if 1945 was the base year.

Let’s close with this recently tweeted video from Human Progress, which shows relative levels of per-capita economic output over a 100-year period for 16 different nations.

Pay specific attention to how high Argentina was ranked in the late 1940s if you want to appreciate the awful consequences of Peronist statism.

P.S. Also make sure to note that Chile was in last place in the 1970s and then significantly improved in the rankings by liberalizing the economy and reducing the burden of government in the 1980s. Yet another reminder that the world is a laboratory and every experiment tells us the same thing: Statism produces bad results and markets deliver good results.

 

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The folks who don’t want to let a crisis go to waste have been very busy in the era of coronavirus, pushing an ever-expanding menu of bad ideas.

Now we have another bad idea to add to the list.

A professor from Yale Law School, Daniel Markovits, argues in a column in the New York Times that the virus is a great excuse to impose a wealth tax.

Our extraordinary battle against the pandemic should draw on the immense reserves that the most privileged among us have accumulated over decades of abundance. To achieve this goal, America should institute a wealth tax. …the relief effort should be funded through a one-time wealth tax imposed on the richest Americans… An exemption for the first $2.5 million of household wealth would exclude the bottom 95 percent from paying any tax at all and leave the top 5 percent with total taxable wealth of roughly $40 trillion. A 5 percent tax on the richest 5 percent of households could thus raise up to $2 trillion. …this one-time wealth tax…appeal ought to cross partisan lines. …A wealth tax would fund the relief effort in a way that gives meaning to shared sacrifice in the face of a universal threat.

My initial suggestion for Professor Markovits is the same one I put forth for Bill Gates. He should lead by example and donate a big chunk of his income, as well as the bulk of his savings and investments, to the IRS.

As an Ivy League professor, I’m sure he’s comfortably positioned as a member of the infamous “top 1 percent” of taxpayers, so he can be a guinea pig for his idea. To make things easy, the government has a website for him to use.

But let’s set aside snark and focus on the economic consequences. This issue deserves serious attention, not only because it is a threat in the United States, but also because it’s becoming an issue in other nations.

Such as Argentina.

Argentine Economy Minister Martin Guzman has backed the idea of a wealth tax on the country’s rich…to…find money to help cope with the Covid-19 pandemic. The tax would affect 11,000 people with fortunes of at least $2 million, Guzman said… He spoke in an interview with journalist Horacio Verbitsky, published on the website El Cohete a la Luna. President Alberto Fernandez, in a separate interview, spoke of the need for wealth redistribution.

And South Africa.

The South African government will consider a proposal for a one-off wealth tax during an economic recovery planning meeting… Such a tax could assist Africa’s most industrialized economy as it bounces back from the coronavirus outbreak and a five-week lockdown that is scheduled to be lifted on 30 April. The proposal comes from a group of economists, led by former South African National Treasury budget chief Michael Sachs.

The big problem with all of these proposals is that they ignore the crippling economic impact of wealth taxation.

The important thing to understand is that such taxes impose very punitive implicit tax rates on saving and investment. As seen in the accompanying chart, the actual tax rate depends on how well affected taxpayers are investing their money.

And it doesn’t take extreme assumptions to see that many taxpayers will face implicit tax rates of more than 100 percent!

And since all economic theories – even foolish ones such as socialism – agree that saving and investment are vitally important if we want higher living standards, any sort of wealth tax is a big mistake.

Actually, that’s an understatement.

In a normal economy, a wealth tax is a big mistake. But we’re now dealing with the very painful economic fallout from the coronavirus.

We will have a desperate need for lots of private capital if we want to restore prosperity as fast as possible, which is why imposing a wealth tax nowadays (in addition to other forms of double taxation that already exist) would be a catastrophic blunder.

And if the class-warfare crowd succeeds in their campaign to punish the rich, poor people will suffer the most.

P.S. Some people argue that a one-time wealth tax, similar to what Prof. Markovitz proposes and what South Africa is considering, wouldn’t have adverse economic effects because it penalizes productive behavior in the past (and there’s no way for people to reduce work, saving, and investment that already took place). But as I explained when debunking IMF arguments for a one-time wealth tax, this assertion is flawed because a) people will adjust their behavior when such a tax is discussed, b) people won’t trust it is a one-time tax, and c) the money will be used to finance a larger burden of government spending.

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It’s difficult to be optimistic about some parts of the world.

When I look at Greece and Italy, for instance, I can’t help but think that economic renaissance is very unlikely, in part because of demographics, but even more so because voters have been conditioned to think that they have a right to live off the government.

This dependency mindset shows that societal capital has eroded, and it’s why I fear those nations have passed a tipping point.

Another example is Argentina. The Wall Street Journal‘s editorial page is very discouraged that the Peronists may return to power in that country.

Does Argentina have a death wish? That’s the question going around after Peronist Alberto Fernández and his running mate, former President Cristina Kirchner, took first place in Sunday’s presidential “primaries” with 48% of the vote. President Mauricio Macri finished 16 points behind… Clearly investors don’t want to hang around if Mr. Fernández and Mrs. Kirchner—whose eight years as president (2007-2015) were marked by leftwing populism and corruption—get to power. Mr. Macri’s unexpectedly poor showing sent the peso and equities down and default risk for Argentine bonds up.

So why would Argentinians vote for statism and economic collapse, especially since there’s so much evidence that Peronists have done immense damage to the country’s economy?

In part, because they were choosing between Tweedledee and Tweedledum. The supposed center-right incumbent, Mauricio Macri, governed as a statist.

And he’s been doubling down on bad policy in hopes of staying in office.

…he fought back by promising to raise the minimum wage for the second time this year, freeze the price of gasoline for 90 days, increase welfare payments in September and October and give a bonus to federal bureaucrats, police and the military. Perhaps this half-baked populism will move voters, but it augurs poorly for the Argentine future. …Mr. Macri…sought to avoid confrontation. He ought to have set about shrinking the state and its subsidies. Instead he maintained lavish government spending. The kinder, gentler president has been unwilling to tell Argentines in stark terms what they are up against. …Argentine debt has shot up on Mr. Macri’s watch and as a percentage of GDP it is forecast to reach 100% this year. Deficit spending has put pressure on the central bank to print money, and there has been no effort to contain inflation expectations.

Ugh, Macri seems even worse than some of America’s big-government Republicans.

But there is a sliver of good news. If nothing else, Argentina serves as an example of why so-called “democratic socialism” is so misguided.

In some analysis for investors, Michael Cembalest of J.P. Morgan looked around the world for insights and evidence about the ideology championed by Bernie Sanders and Alexandria Ocasio-Cortez (h/t: James Pethokoukis).

He starts off by identifying the key criteria of democratic socialism.

This sounds like Elizabeth Warren’s platform, or perhaps the Green New Deal, so I think this is an accurate list.

Mr. Cembalest points out, though, that the Nordic nations don’t qualify as being socialist of any kind.

Some point to Nordic countries as democratic socialism in action, but…while Nordic countries have higher taxes and greater redistribution of wealth, Nordics are just as business-friendly as the US if not more so. Examples include greater business freedoms, freer trade, …and less of an impact on competition from state control over the economy. …while Nordics raise more taxes than the US, the gap usually results from regressive VAT/consumption taxes and Social Security taxes rather than from progressive income taxes. The bottom line: copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system.

He’s right. The Nordic nations get relatively high marks for economic liberty in all areas other than fiscal policy. They’re no more socialist than the United States.

He did find a country, however, that is a very close match for democratic socialism.

I couldn’t find any country that ticked all…democratic socialist boxes, but I did find one that came close: Argentina.

Seems to me that Argentina does tick all the boxes. But since he doesn’t delve into methodology, I’m not sure of his definitions.

In any event, he looks at Argentina’s relative performance over a long period of time, which is the right approach to see if a country is converging or diverging.

There are two ways to look at Argentina’s decline relative to the rest of the world since the early 1900’s. The first shows the ratio of real per capita GDP in 2018 vs the same measure in 1913. Argentina’s ratio barely rose, and is the lowest ratio of all countries for which data is available for both years.

Here’s the relevant chart, and you can see that Argentina has the worst performance over the past 100 years.

He also slices the data using another approach.

The next method illustrates how Argentina used to be among the richest nations in the world, and how far it has fallen. The x axis shows percentile of per capita GDP in 1913, while the y axis shows the same measure in 2018. All countries below the diagonal line have seen their rankings fall, while those above the line have seen their rankings improve. The farther the distance from the diagonal line, the more things have changed; Argentina’s decline from the 83rd percentile in 1913 to the 40th in 2018 is the largest decline on the chart.

And here’s the accompanying chart.

Fast growing nations are above the line, so it’s hardly a surprise to see that the Asian Tigers of Taiwan, South Korea, Hong Kong, and Singapore have done well.

And I’m also not surprised to see that South Africa is almost as bad as Argentina.

At some point, I’ll have to re-crunch the numbers showing the post-WWII era. I imagine that data also will show a very strong relationship between national prosperity and economic liberty.

P.S. One external reason for Argentina’s awful performance is that it keeps getting rewarded for bad policy with IMF bailouts.

P.P.S. Greece is another country that should be a warning sign about what happens with democratic socialism.

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Just last month, I wrote about Argentina’s grim economic outlook and criticized the supposed right-of-center President, Mauricio Macri, for failing to deliver any meaningful economic liberalization.

And reform is desperately needed.

According to Economic Freedom of the World, Argentina is one of the most statist nations on the planet (the only nations that do worse are Libya and Venezuela).

For all intents and purposes, Argentina is suffering from decades of bad policy.

Argentina is a sobering example of how statist policies can turn a rich nation into a poor nation. …After World War II, Argentina was one of the world’s 10-richest nations. But then Juan Peron took power and initiated Argentina’s slide toward big government, which eroded the nation’s competitiveness and hampered growth.

To put it mildly, the country is an economic tragedy and it should be a lesson for all countries about the importance of good policy.

Yet why am I writing again about Argentina after last month’s analysis?

Because a story in the New York Times discusses the nation’s upcoming presidential election and manages to paint a grotesquely inaccurate picture of what’s been happening in the country. We’re supposed to believe that Macri has been a hard-charging free-market fundamentalist.

Since taking office more than three years ago, President Mauricio Macri has broken with the budget-busting populism that has dominated Argentina for much of the past century, embracing the grim arithmetic of economic orthodoxy. Mr. Macri has slashed subsidies… “It’s a neoliberal government…It’s a government that does not favor the people.” …tribulations playing out under the disintegrating roofs of the poor are a predictable dimension of Mr. Macri’s turn away from left-wing populism. He vowed to shrink Argentina’s monumental deficits by diminishing the largess of the state. …Mr. Macri’s…presidency was supposed to offer an escape from the wreckage of profligate spending.

And we’re also supposed to believe that his failed free-market policies are paving the way for a return to left-wing populism.

As the October election approaches, Mr. Macri is contending with the growing prospect of a challenge from the president he succeeded, Cristina Fernández de Kirchner… Her return would resonate as a rebuke of his market-oriented reforms while potentially yanking Argentina back to its accustomed preserve: left-wing populism.

For what it’s worth, I suspect that Kirchner will win the next election. So that part of the article is correct.

But the part about free-market reforms is laughably inaccurate.

You don’t have to believe me. Let’s look at the Argentinian data from Economic Freedom of the World. Maybe I’m being dogmatic, but I hardly think a tiny improvement in 2015 followed by backsliding in 2016 qualifies as “diminishing the largess of the state.”

The bottom line is that Macri should have been bold and made sweeping changes once he was in charge. Like Chile after Allende’s Marxist regime was deposed.

Those reforms doubtlessly would have triggered protests. But if they became law, they would have produced tangible results.

Instead, Macri chose a timid approach and the economy has remained stagnant. Yet because many voters think he adopted reforms, they blame him and they blame free markets.

The net result is that they will probably vote for Kirchner, which presumably will mean even more statism for the long-suffering people of Argentina.

P.S. What’s happening in Argentina is not an isolated example. It’s very common for supposed right-wing politicians to choose bad policies, which then paves the way for left-wing election victories. Look at how Bush’s statist policies created the conditions for an Obama victory. Or how Sarkozy set the stage for Hollande in France. Or how Theresa May’s fecklessness in the United Kingdom may lead to a win for Jeremy Corbyn.

P.P.S. I’m tempted to also warn that Trump’s risky protectionism may lead to a victory for Crazy Bernie or some other Democrat in 2020. But Trump does have some good policies as well, so it’s hard to know whether the economy will be a net plus or net minus in the election.

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Argentina is a sobering example of how statist policies can turn a rich nation into a poor nation.

I’m not exaggerating. After World War II, Argentina was one of the world’s 10-richest nations.

But then Juan Peron took power and initiated Argentina’s slide toward big government, which eroded the nation’s competitiveness and hampered growth.

Even the Washington Post‘s Bureau Chief shares my assessment.

Perón’s rise marked the start of the country’s long, slow slide. …big-government populism squandered Argentine’s fortunes on nationalized railroads and ports. Perón’s pro-labor policies cultivated devout working-class followers but also laid the groundwork for the conversion of his party into an entity that would mirror a corrupt union. …The country battled bouts of damaging inflation in 1955, 1962, 1966 and 1974. …in the 1980s, Argentina saw a bonanza of public-sector hiring, bloated budgets… Cristina Fernández de Kirchner, the Perónist ex-president, took the helm a decade ago, ushering in a new era of fudged financial data and populism.

Thanks to endless bouts of bad policy, the nation suffers from perpetual crisis.

…a country stuck in what has now become its natural state: crisis. As if living a deja vu, I flipped on the TV to once again hear Argentine newscasters fretting about bailouts, the diving peso and fears of default. Beggars — even more than before — panhandled on the same corner by an imposing church on Santa Fe Avenue. As others had done years before, stores advertised going-out-of-business sales. …Argentina is doomed to a repeating history of financial emergencies. You can almost set your watch to it, and, worryingly, the intervals between implosions are growing ever shorter.

If we focus on policy this century, there was plenty of bad policy under the previous Peronist-oriented Presidents.

And since government amassed so much power over the economy, nobody should be surprised by this BBC report about rampant corruption.

More than a dozen people have been arrested in Argentina after copies of notebooks were found detailing what seem to be illicit political payments. They were kept by Oscar Centeno, who was employed as a driver by a public works official and describe delivering bags of cash. The notebooks cover from 2003 to 2015, when Cristina Fernández and her late husband Néstor Kirchner were president. …She has previously said she is being politically persecuted by the current government, who want to distract people from the country’s economic problems. …the payments total around US$56m (£43m), but Judge Claudio Bonadio says the corruption network could reached up to US$160m.

The Economist reports that the current president, Mauricio Macri, is imposing his share of bad policies, including price controls.

The measures are a change of course for a president who sought to undo the effects of more than a decade of populist government. The most important one is a…revival of a price-control mechanism in force under the two Peronist presidents who preceded him, Néstor Kirchner and his wife, Cristina Fernández de Kirchner. In Mr Macri’s version, which he, like the Kirchners, calls “precios cuidados” (“curated prices”), the price of 64 consumer items, from milk to jam, will be frozen for six months (ie, until the eve of the election). An “army” of inspectors, under the direction of the production ministry, will enforce supermarkets’ adherence to the freeze.

Price controls are spectacularly misguided.

Politicians cause inflation by having the central bank create too much money. They then act as if the result rise in prices is the fault of “greedy businesses” and impose controls.

All of which never ends well (see Venezuela, for instance).

But Macri is also adopting other bad policies.

The government has also opened new credit lines for pensioners and families with children and expanded a plan to build new homes with state financing.

He obviously hopes his short-sighted policies will enable him to prevail in the upcoming elections.

And maybe he will if his main opponent is similarly bad.

But at least one candidate supports pro-market reforms.

Argentine economist José Luis Espert once described President Mauricio Macri’s political movement as “kirchnerism with good manners,”… Now a presidential candidate himself, Espert wants to make government a lot less polite. “We need to lay off approximately 1.5 million public employees,” Espert, the head of the newly-formed Libertarian party, told AQ in an exclusive interview. “What I propose is a complete U-turn.” …The economist claims that he is the only candidate who can actually turn around what he describes as “Argentina’s century-long failure, marked by economic populism.” …“We need to abandon our model of import substitution and of running budget deficits, and revise our labor laws, which are similar to those during Italian fascism. We need to have free trade and a state that can pay for itself through reasonable taxes,” added Espert, who on Feb. 2 released a book called The Complicit Society, in which he describes “the economic myths that led Argentina to decadency.”

Wouldn’t it be a great ending to the story if Argentina become another Chile?

My fingers certainly will be crossed (as they are currently for Brazil).

Ironically, even though the International Monetary Fund has subsidized bad policy in Argentina with periodic bailouts, some of the economists who work at the IMF actually understand what’s plaguing the country.

Here are some excerpts from their study, starting with a description of how big government is stifling prosperity.

Argentina’s economic fortune has been on a declining path for a long time. Argentina’s per capita output relative to that of advanced economies nearly halved over the past 50 years. …yearly labor productivity growth has been close to zero on average since 1980… Argentina’s regulatory and administrative burden on businesses is one of the heaviest among EMs… Argentina has the worst overall PMR index among 42 OECD and non-OECD countries, owing to high barriers to entrepreneurship (including complex regulatory procedures which impede firm entry/expansion, and barriers in network sectors), …high trade and other external barriers, and a significant involvement of the state in the economy, both through state-owned enterprises and price controls. …Stringent labor market regulations, such as high firing costs and restrictions on temporary employment, hamper efficient allocation of resources in the economy, discourage investment, and lead to labor underutilization and informality… High tax burden, especially on labor, have similar adverse effects on investment, labor utilization (particularly formal employment), and overall competitiveness of the economy.

Here’s a chart showing how Argentina is de-converging, which is remarkably depressing since conventional theory tells us that poor nations should be catching up with rich nations.

Here are the main findings from the study.

The main objective of this paper is to…assess the role of the reforms in boosting long-term GDP growth through their impact on (i) capital accumulation, (ii) labor utilization, and (iii) total factor productivity or efficiency. …The paper finds that structural reforms can have significant impact on long-term GDP growth through all three supply-side channels. …An ambitious reform effort, which were to improve business regulatory environment (closing half the gap with Australia and New Zealand over two decades), would add 1–1½ percent to average annual growth of GDP. Reducing trade tariffs and payroll taxes (closing half the gap with Australia and New Zealand) could each boost average annual real GDP growth by about 0.1 percent.

Keep in mind, by the way, that even small increments of sustained growth make a huge difference to a nation’s long-run prosperity.

Here’s a table showing the IMF’s suggested reforms.

I actually agree with almost everything on the list.

The only mistake is calling for aggressive anti-trust laws. Yet history teaches us that such laws wind up being tools to protect incumbent companies.

Moreover, the best way to fight monopolies is to have completely open entry to the marketplace.

But I don’t want to quibble. By IMF standards, that list of proposed policies is excellent.

P.S. Pope Francis inexplicably wants to export the failed Argentine model to the rest of the world. Not surprisingly, I think Thomas Sowell and Walter Williams have a better approach.

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Move over, Crazy Bernie, you’re no longer the left’s heartthrob. You’ve been replaced by Alexandria Ocasio-Cortez, an out-of-the-closet socialist from New York City who will enter Congress next January after beating a member of the Democratic leadership.

Referring to the boomlet she’s created, I’ve already written about why young people are deluded if they think bigger government is the answer, and I also pointed out that Norway is hardly a role model for “Democratic socialism.”

And in this brief snippet, I also pointed out she’s wrong to think that you can reduce corporate cronyism by giving government even more power over the economy.

But there’s a much bigger, more important, point to make.

Ms. Ocasio-Cortez wants a radical expansion in the size of the federal government. But, as noted in the Washington Examiner, she has no idea how to pay for it.

Consider…how she responded this week when she was asked on “The Daily Show” to explain how she intends to pay for her Democratic Socialism-friendly policies, including her Medicare for All agenda. “If people pay their fair share,” Ocasio-Cortez responded, “if corporations paid — if we reverse the tax bill, raised our corporate tax rate to 28 percent … if we do those two things and also close some of those loopholes, that’s $2 trillion right there. That’s $2 trillion in ten years.” She should probably confer with Democratic Socialist-in-arms Sen. Bernie Sanders, I-Vt., whose most optimistic projections ($1.38 trillion per year) place the cost of Medicare for All at roughly $14 trillion over a ten-year period. Two trillion in ten years obviously puts Ocasio-Cortez a long way away from realistically financing a Medicare for All program, which is why she also proposes carbon taxes. How much she expects to raise from this tax she didn’t say.

To be fair, Bernie Sanders also didn’t have a good answer when asked how he would pay for all the handouts he advocated.

To help her out, some folks on the left have suggested alternative ways of answering the question about financing.

I used to play basketball with Chris Hayes of MSNBC. He’s a very good player (far better than me, though that’s a low bar to clear), but I don’t think he scores many points with this answer.

Indeed, Professor Glenn Reynolds of the University of Tennessee Law School required only seven words to point out the essential flaw in Hayes’ approach.

Simply stated, there’s no guarantee that a rich country will always stay rich.

I wrote earlier this month about the importance of long-run economic growth and pointed out that the United States would be almost as poor as Mexico today if growth was just one-percentage point less every year starting in 1895.

That was just a hypothetical exercise.

There are some very sobering real-world examples. For instance, Nima Sanandaji pointed out this his country of Sweden used to be the world’s 4th-richest nation. But it has slipped in the rankings ever since the welfare state was imposed.

Venezuela is another case study, as Glenn Reynolds noted.

Indeed, according to NationMaster, it was the world’s 4th-richest country, based on per-capita GDP, in 1950.

For what it’s worth, I’m not familiar with this source, so I’m not sure I trust the numbers. Or maybe Venezuela ranked artificially high because of oil production.

But even if one uses the Maddison database, Venezuela was ranked about #30 in 1950, which is still impressive.

Today, of course, Venezuela is ranked much lower. Decades of bad policy have led to decades of sub-par economic performance. And as Venezuela stagnated, other nations become richer.

So Glenn’s point hits the nail on the head. A relatively rich nation became a relatively poor nation. Why? Because it adopted the statist policies favored by Bernie Sanders and Alexandria Ocasio-Cortez.

I want to conclude, though, with an even better example.

More than seven years ago, I pointed out that Argentina used to be one of the world’s richest nations, ranking as high as #10 in the 1930s and 1940s (see chart to right).

Sadly, decades of Peronist policies exacted a heavy toll, which dropped Argentina to about #45 in 2008.

Well, I just checked the latest Maddison numbers and Argentina is now down to #62. I was too lazy to re-crunch all the numbers, so you’ll have to be satisfied with modifications to my 2011 chart.

The reverse is true as well. There are many nations that used to be poor, but now are rich thanks to the right kind of policies.

The bottom line is that no country is destined to be rich and no country is doomed to poverty. It’s simply a question of whether they follow the right recipe for growth and prosperity.

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Way back in 2009, I narrated a video explaining that people worry too much about deficits and debt. Red ink isn’t desirable, to be sure, but I pointed out that the real problem is government spending.

And the bottom line is that most types of government spending are bad for an economy, regardless of whether they are financed by taxes or borrowing.

It is possible, of course, for a nation to have a debt crisis. But keep in mind that this simply means a government has accumulated so much debt that investors no longer trust that they will receive payments on government bonds.

That’s not a good outcome, but replacing debt-financed spending with tax-financed spending is like jumping out of the frying pan and into the fire. Or the fire into the frying pan, if you prefer. In either case, politicians are ignoring the real problem.

Greece is a cautionary example. Thanks to a period of overspending, Greek politicians drove the country into a debt crisis. But this dark cloud had a silver lining. The good news (at least relatively speaking) is that the government no longer could borrow from the private sector to finance more spending.

But the bad news is that Greek politicians subsequently hammered the economy with huge tax increases in hopes of propping up the country’s bloated welfare state. And the “troika” made a bad situation worse with bailout funds (mostly to protect big banks that unwisely lent money to Greek politicians, but that’s a separate story).

In other words, Greece got in trouble because of too much government spending and it remains in trouble because of too much government spending. As is the case for many other European nations.

And I fear the United States is slowly but surely heading in that direction. I elaborate about the problem of government spending – and the concomitant symptom of red ink – in this interview with the Mises Institute.

For all intents and purposes, I’m trying to convince people that deficits and debt are bad, but they’re bad mostly because they are a sign that government is too big. Sort of like a brain tumor being the real problem and headaches being a warning sign.

I feel like Goldilocks on this issue. Except instead of porridge that is too hot or too cold, I deal with people on both sides who think red ink is either wonderful or terrible.

For an example of the former group, here’s some of what Stephanie Kelton wrote for the New York Times last October.

…bigger deficits wouldn’t wreck the nation’s finances. …Lawmakers are obsessed with avoiding an increase in the deficit. …It’s also holding us back. Politicians of both parties should stop using the deficit as a guide to public policy. Instead, they should be advancing legislation aimed at raising living standards and delivering…long-term prosperity.

Hard to disagree with the above excerpt.

But here’s the part I don’t like. She’s a believer in the perpetual motion machine of Keynesian economics. She thinks deficits are actually good for the economy and she wants to use debt to finance an ever-larger burden of government spending.

Government spending adds new money to the economy, and taxes take some of that money out again. …we should think of the government’s spending as self-financing since it pays its bills by sending new money into the economy. …the deficit itself could be deployed as a potent weapon in the fights against inequality, poverty and economic stagnation.

Ugh.

Now let’s check out the view of the so-called deficit hawks who think red ink is an abomination.

Here are some passages from a Hill report on the battle over last year’s tax plan.

A handful of GOP deficit hawks are worried that their party’s tax plan could add trillions to the deficit, deepening a debt crisis for future generations. …The tax plan could cost the government $1.5 trillion in revenue over the next decade… Sen. Bob Corker (R-Tenn.), who recently announced his retirement at the end of this Congress, has warned he’ll oppose the tax plan if it adds to the deficit. …In a separate interview, he told The New York Times that the debt is “the greatest threat to our nation,” more dangerous than the Islamic State in Iraq and Syria, or North Korea.

Ugh, again.

The threat isn’t the red ink. The real danger is an ever-increasing burden of government spending, driven by entitlements.

Besides, the GOP tax bill actually is a long-run tax increase!

Let’s close with a video on the topic from Marginal Revolution. It has too much Keynesianism in it for my tastes, but the discussion of Argentina’s default is useful for those who wonder about whether the United States is going to have a debt meltdown at some point.

P.S. I don’t agree with Keynesians and I don’t agree with the self-styled deficit hawks. But I can appreciate that both groups have a consistent approach to public finance. What really galls me are the statist hypocrites who are cheerleaders for debt when there are proposals to increase government spending, but then do a back flip and pretend that debt is terrible and must be reduced when tax increases are being discussed.

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Since I called Trump a big-government Republican during the 2016 campaign and just condemned his capitulation to a spendaholic budget deal, it goes without saying that I’m not a huge fan of the President.

Heck, I also recently criticized his protectionism, warning that additional barriers to trade could offset the pro-growth effect of lower tax rates.

But I like to think I’m fair in my criticisms. I stay away from the personal stuff (other than for humor purposes) and and simply focus on whether liberty is increasing or decreasing.

Today, though, I want to quasi-defend Trump because a professor from the University of Richmond wrote a really strange column for the Washington Post with a very bizarre assertion about Juan Perón, the populist post-World War II president of Argentina.

It’s en vogue for enraged liberals to compare Trumpism to Argentine Peronism, wielding the analogy as a warning about the potential apocalypse that they fear is about to engulf us. …Like so many familiar historical cliches, however, this one is incomplete, if not downright wrong.

The professor who wrote the piece, Ernesto Semán, wants us to believe Perón is someone to admire, sort of the Argentine version of Bernie Sanders.

…the core of Peronism was a vision that is the exact opposite of Trumpism. Peronism led a process of expanding economic equality, collective organization and political enfranchisement. …Juan Perón presided over a process of massive wealth redistribution on behalf of the emerging working classes. …his government increased its intervention in the economy and provided…free public health care and education for everyone, as well as a wide array of union-managed social services. Peronism enacted strong regulations on private capital… Argentina’s social transformations resembled in some ways those that took place in the United States during the New Deal. Perón certainly thought so…in 1946 quoted entire paragraphs from President Franklin Roosevelt’s second inaugural address.

And he says that today’s Democrats should embrace Perón’s policies.

…comparison of Trumpism to Peronism…ignores how in fundamental ways the two are polar opposites… Instead of fearing Latin American populism, …Democrats should look to it as offering a potential path forward for a more equal and fair country.

Wow. This isn’t quite as bizarre as arguing that Venezuela should be a role model (looking at you, Bernie Sanders, Joe Stiglitz, and others), but it’s close.

Here’s everything you need to know about Peronism, from a 2014 article in the Economist.

The country ranked among the ten richest in the world…its standing as one of the world’s most vibrant economies is a distant memory… Its income per head is now 43% of those same 16 rich economies… As the urban, working-class population swelled, so did the constituency susceptible to Perón’s promise to support industry and strengthen workers’ rights.

Takes a look at this chart from the article showing Argentina’s per-capita GDP relative to other nations. As you can see, the country used to be much richer than Brazil and considerably richer than Japan. And all through the first half of the 20th century, Argentina was not that far behind the United States and other wealthy nations. But then look at the lines starting after Perón came to power in the late 1940s.

In other words, Peronist policies reduced the comparative prosperity of the ordinary people.

Just like similar policies have reduced the comparative prosperity of ordinary people in Venezuela.

What makes these numbers especially powerful is that convergence theory assumes that the gap between rich nations and poor nations should shrink. Yet statist policies are causing the gap to widen.

I put together a chart back in 2011 showing the relative rankings of both Argentina and Hong Kong. As you can see, Argentina used to be one of the world’s richest nations. Indeed, it was the world’s 10th-richest country when Perón took over. And Hong Kong was relatively poor. But look at what’s happened over time. Perón’s statist policies produced a steady decline while Hong Kong’s laissez-faire approach has now made it one of the richest jurisdictions on the planet.

Yet Mr Semán says we should copy Perón. Go figure.

Let’s conclude by circling back to Trump. Semán is upset because some people are equating Trump (who he despises) with Perón (who he admires).

I’m vaguely sympathetic to part of his argument. He’s right that Trump’s version of populism is not the same as Perón’s left-wing version of populism (basically the Bernie Sanders agenda).

But since I care about the less fortunate, I have nothing for disdain for Semán’s assertion that Perón’s policies should be adopted in America.

P.S. Given his remarkable level of  economic illiteracy, you won’t be surprised to learn that Pope Francis was influenced by Peronism.

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I live-tweeted last night’s debate between the Governor Mike Pence and Senator Tim Kaine.

As the debate closed, I summed up my reaction with two tweets, one of which sadly observed that Donald Trump does not share Ronald Reagan’s belief in smaller government and more freedom.

And because I’m fair and balanced, I also reminded people that Hillary Clinton is no Bill Clinton. Indeed, I pointed out that her vote rating in the Senate was almost identical to Bernie Sanders’.

That doesn’t mean Bernie and Hillary are identical.

I’ve remarked many times that he wants America to become Greece at 90 miles per hour while she seems content for the country to become Greece at 55 miles per hour.

But, in practice, they were almost always on the same side when it came time to cast votes on the floor of the Senate.

In any case, my tweet obviously touched a nerve since there were a bunch of (mostly incoherent) responses. And I also got this reaction from a law professor at the University of Baltimore.

I assume he thinks I was being juvenile to say that Senator Sanders is crazy. Since I actually am juvenile in many ways (particularly my sense of humor), I might be tempted to plead guilty.

But let’s actually contemplate how the Vermont Senator should be labeled.

Sanders is a virulent and dogmatic supporter of coercive statism. Even columnists for the Washington Post have criticized him for being too far to the left.

But he’s not a real socialist (which technically means government ownership of the means of production). And even though his policies are based on coercion, I certainly don’t think he is a totalitarian.

Yet he’s not a rational leftist like you find in the Nordic nations (where they at least compensate for large welfare states by being very market-oriented about trade, regulation, etc).

All this explains why, when categorizing different types of leftists, I put him in the “crazies” group along with the Syriza Party of Greece.

And while “crazies” might be a pejorative bit of shorthand, I do think folks like Bernie Sanders are largely detached from reality.

But I don’t want people to be upset with me, so I’m going to reconsider how Sanders should be categorized.

To help with this chore, let’s consider a few additional bits of information, starting with an item from his Senate office that contains this remarkable passage.

These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?

By the way, it’s not clear if this is a column written by Sanders or whether he just endorses the sentiments expressed therein.

Though it doesn’t really matter since – at the very least – he obviously agrees with the message.

So let’s think about what it means that Sanders views Argentina and Venezuela as role models.

Argentina used to be one of the richest nations in the world, ranked in the top 10 at the end of World War II. But then decades of statism, starting with Peron and continuing through Kirchner, wreaked havoc with the nation’s economy and Argentina has plummeted in the rankings.

And I’ve written many times about the basket case of Venezuela, so there’s already ample information to discredit anyone who thinks that nation should be emulated.

But let’s add one more straw to the camel’s back. Here are some excerpts from a very depressing story about the human misery being caused by big government in that country.

Klaireth Díaz is a 1st-grade teacher at Elías Toro School… Last year, she says, attendance was painfully low. Every day, of a class of 30 children at least 10 would be absent. “The reason was always lack of food,” she told Fox News Latino. She said she had a student who skipped class every single Thursday and when she asked his mother about it, she explained that Thursday was the day of the week assigned to her family to buy food at government-regulated prices – which involves standing in line starting sometimes as early as 3 a.m.

Food lines?!? That’s what Bernie Sanders thinks is a success story?

Though I guess if everyone has to wait in lines for food, at least they’re all equally poor (though even that’s not true since the ruling-class leftists in Venezuela have plundered the nation’s treasury).

In other words, maybe this image isn’t a joke or satire after all.

But it gets worse. The food lines apparently don’t provide enough food.

Across the country, teachers have said they have seen children faint or fall asleep because they haven’t had enough to eat. …As the school year progressed last year, Diaz said, she noticed more and more kids had stopped bringing lunch. …According to a poll conducted last month by More Consulting among 2,000 respondents in Caracas, in 48 percent of the times children do not attend school, the cause is related to the food. Either they are feeling too weak for lack of nutrition, or their parents rather use the transport money to buy food, or they are in the food lines with their parents. The poll revealed that 36.5 percent of children eat only twice a day and 10.2 percent just once.

So maybe Bernie Sanders isn’t crazy. If he views Venezuela as a role model, maybe he’s morally blind. Or genuinely evil.

But I’m a nice guy, so I’m sticking with crazy since I would hate to think that even a crank like Sanders willfully embraces the monstrous outcomes found in Venezuela.

P.S. I haven’t written about Ecuador, but if forced to choose among Bernie’s various success stories, I guess that would be my pick since it is 142 out of 159 in the rankings from Economic Freedom of the World, which surely is better than being Argentina (156) or Venezuela (dead last at 159).

To be fair to Sanders, at least he didn’t list Cuba, which is such an economic hell-hole that (if reliable numbers were available) it would presumably rank below even Venezuela.

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Two days ago, I contrasted the views of Pope Francis and Walter Williams about capitalism and morality.

I explained that Walter had the upper hand because free markets are a positive-sum game based on voluntary exchange while redistribution (at best) is a zero-sum game based on coercion.

That’s the theoretical argument. Now let’s look at the empirical data, specifically focusing on which approach is best for the less fortunate.

Thomas Sowell, the great economist at Stanford University’s Hoover Institution, is not impressed by the Pope’s analysis. Here some of what Prof. Sowell wrote for Investor’s Business Daily.

Pope Francis has created political controversy…by blaming capitalism for many of the problems of the poor. …putting aside religious or philosophical questions, we have more than two centuries of historical evidence… Any serious look at the history of human beings over the millennia shows that the species began in poverty. It is not poverty, but prosperity, that needs explaining. …which has a better track record of helping the less fortunate — fighting for a bigger slice of the economic pie, or producing a bigger pie? …the official poverty level in the U.S. is the upper middle class in Mexico. The much criticized market economy of the U.S. has done far more for the poor than the ideology of the left. Pope Francis’ own native Argentina was once among the leading economies of the world, before it was ruined by the kind of ideological notions he is now promoting around the world.

I briefly discussed the failure of the Peronist Argentinian model last month, but let’s take a closer look at Professor Sowell’s assertions about the U.S. and Argentina.

My colleague at the Cato Institute, Marian Tupy, has put together a great fact-filled website called Human Progress, and it allows users to access all sorts of databases to produce their own charts and tables.

And here’s what the data shows about per-capita economic output in Argentina and the United States.

Not exactly a ringing endorsement of the supposedly more compassionate system in Argentina.

As you can see from this table, Argentina actually was slightly richer than the U.S. back in 1896. But that nation’s shift to statism, particularly after World War II, hindered Argentina’s growth rates.

And seemingly modest differences in growth, compounded over decades, have a huge impact on living standards for ordinary people (i.e., inflation-adjusted GDP per person climbing nearly $27,000 in the U.S. vs an increase of less than $6,700 in Argentina).

By the way, this is not an endorsement of America’s economic policy. We have far too much statism in the United States.

But compared to Argentina, which generally has ranked in the bottom quartile for economic freedom, the United States has a more market-friendly track record.

To help make the bigger point about the importance of economic liberty, let’s now compare the United States with a jurisdiction that consistently has been ranked as the world’s freest economy.

Look at changes in economic output in America and Hong Kong from 1950 to the present. As you can see, Hong Kong started the period as a very poor jurisdiction, with per-capita output only about one-fourth of American levels.

But thanks to better policy, which led to faster growth compounding over several decades, Hong Kong has now caught up to the United States.

What’s most remarkable, if you look at the table, is that per-capita output over the past 65 years has soared by more than 1,275 percent in Hong Kong.

Needless to say, if the U.S. is out-performing Argentina and Hong Kong is out-performing the U.S., then a comparison of Hong Kong and Argentina would yield ever starker results.

I actually did something like that back in 2011 and the results further underscore that there’s a very powerful relationship between economic policy and economic performance.

Which brings us back to the fundamental issue of what system is best for the less fortunate in society?

I suppose that’s a judgement call, but poor people obviously have higher incomes and more opportunity when there’s strong economic growth.

But as Margaret Thatcher famously explained, some people are so consumed by disdain for success that they’re willing to accept more suffering for poor people if they can simultaneously lower the incomes of rich people.

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What’s the greatest economic tragedy in modern history?

The obvious answer is communism, which produced tens of millions of needless deaths and untold misery for ordinary people. Just compare living standards in North Korea and South Korea, or Chile and Cuba.

But if there was a second-place prize for the world’s biggest economic failure, Argentina would be a strong contender.

Here’s one fact that tells you everything you need to know. In 1946, when Juan Perón came to power, Argentina was one of the 10-richest nations in the world. Economic policy certainly wasn’t perfect, but government wasn’t overly large are markets generally were allowed to function. Combined with an abundance of natural resources, that enabled considerable prosperity.

But Perón decided to conduct an experiment in statism.

Here’s how Wikipedia describes his economic policy.

Campaigning among workers with promises of land, higher wages, and social security, he won a decisive victory in the 1946 presidential elections. Under Perón, the number of unionized workers expanded as he helped to establish the powerful General Confederation of Labor. Perón turned Argentina into a corporatist country in which powerful organized interest groups negotiated for positions and resources. …The state’s role in the economy increased, reflected in the increase in state-owned property, interventionism (including control of rents and prices) and higher levels of public inversion, mainly financed by the inflationary tax. The expansive macroeconomic policy, which aimed at the redistribution of wealth and the increase of spending to finance populist policies, led to inflation. …Perón erected a system of almost complete protection against imports, largely cutting off Argentina from the international market. In 1947, he announced his first Five-Year Plan based on growth of nationalized industries.

So were these policies successful?

Not exactly. In an article published last year, The Economist wrote about Argentina’s sad decline.

…its standing as one of the world’s most vibrant economies is a distant memory… Its income per head is now 43% of those same 16 rich economies… After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tariffs and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall. …As the urban, working-class population swelled, so did the constituency susceptible to Perón’s promise to support industry and strengthen workers’ rights. There have been periods of liberalisation since, but interventionism retains its allure.

The bottom line is that Perón was a disaster for his nation. Not only did he sabotage Argentina’s economy, he also apparently undermined the social capital of the country by somehow convincing a big chunk of the population that “Peronism” is an alluring economic philosophy.

Sadly, Pope Francis appears to be one of those people.

Here are some excerpts from a column in the New York Times.

The Economist recently called Francis “the Peronist Pope,” referring to his known sympathies for Argentina’s three-time president, Juan Perón. In the 1940s and ’50s, the populist general upended Argentina’s class structure by championing the country’s downtrodden. …“Neither Marxists nor Capitalists. Peronists!” was the chant of Perón’s supporters. And it was borrowing from the church’s political thinking that enabled Perón to found his “Third Way.” …It comes naturally, then, to Francis, who became a priest in Argentina’s politically engaged church hierarchy, to adopt a populist political tone… He speaks directly to the region’s poor with a fire found in the “liberation theology” that inspired South America’s leftist revolutionaries of the 1970s. …“If you were to read one of the sermons of the first fathers of the church, from the second or third centuries, about how you should treat the poor, you’d say it was Maoist or Trotskyist,” he said in 2010, when he was archbishop of Buenos Aires.

Pope Francis’ infatuation with statism is very unfortunate for a couple of reasons.

The obvious reason is that he is in a position of influence and he’s using that power to promote policies that will reduce prosperity. And poor people will be the biggest victims, as I explained in this BBC interview.

But there’s another problem with the Pope’s approach. Being charitable to the poor is supposed to be an act of free will, not the result of government coercion. Yet by making statements that – at the very least – are interpreted as supportive of a bigger welfare state, he’s taking free will out of the equation.

Libertarian Jesus” would not approve.

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Before getting to the main topic today, here are some excerpts from a New York Post story that patriotic American readers will appreciate.

It deals with a protest.

…the group Disarm the Police…had announced on social media that they had planned to burn the flag in protest of NYPD policies.

But the event didn’t go as planned, thanks to members of the Hallowed Sons Motorcycle Club.

One of the bikers rushed forward in a fit of rage and kicked over the grill, sending embers flying. He then doused it as members of the pro-flag crowd chanted “USA! USA!” The bikers then started trying to rough up the protesters.

Here’s where the ironic part of the story.

…anti-NYPD protesters needed New York’s Finest to save their skin from a gang of angry bikers who tried to pummel them… The protesters were shielded by the cops and escorted out of the park.

And here’s some evidence that silly government regulations (a New York City tradition) take the fun out of protesting and counter-protesting.

While it’s illegal to openly burn anything in Fort Greene Park, the self-styled anarchists managed to find a loophole in the law that allows cooking in closed barbecue grills.

A few final comments on this story.

I realize I shouldn’t care, but I’m always dumbfounded when left-wing crazies refer to themselves as anarchists. Don’t they realize that you can’t be an anarchist while simultaneously advocating for much bigger government?

Reminds me of this bit of humor from the Libertarian Party.

In any event, the supposed anarchists obviously aren’t very bright since they thought it was a good idea to get on the wrong side of a bunch of bikers.

Since this is America’s Independence Day, I can’t help but think they got what they deserved, even though in the abstract I support their right to protest and burn flags that they bought with their own money (or, more likely, with money from their parents or from the welfare office).

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Now for today’s main topic.

I appreciate tax havens for many reasons, mostly having to do with the importance of having some sort of external constraint on the tendency of politicians to over-tax and over-spend.

But I also like these low-tax jurisdictions for non-tax reasons. And high on my list is that I want people to have safe havens for their money as an insurance policy against governments that are incompetent, venal, abusive and/or corrupt.

And for the same reason, I like alternative currencies such as bitcoin (click here is you want to see a short and informative primer). These “cryptocurrencies” give people a way of protecting themselves when government mis-manage or mis-use monetary and financial systems.

And we have some very compelling real-world examples of how this works.

We’ll start with Greece, where people with bitcoins still enjoy liquidity. Those using the banking system, by contrast, are in trouble because of irresponsible government policy.

Here are some excerpts from a Reuters story.

There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. Although absolute figures are hard to come by, Greek interest has surged in the online “cryptocurrency”, which is out of the reach of monetary authorities and can be transferred at the touch of a smartphone screen. New customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400 percent between May and June, according to its founder Thanos Marinos, who put the number at “a few thousand”. The average deposit quadrupled to around 700 euros.

Why are people shifting to bitcoin?

One part of the answer is that bitcoins are insulated from political risk.

Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country. …the bitcoin buyers’ main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency.

And is anyone surprised that there’s interest from other failing welfare states?

Coinbase, one of the world’s biggest bitcoin wallet providers, which is not currently accessible to Greeks, said it had seen huge interest from Italy, Spain and Portugal.

And it’s just a matter of time, I suspect, before there will be interest from France, Belgium, Japan, etc.

Now let’s look at Argentina, another corrupt and dysfunctional government that has a sordid history of abusing both the monetary system and the financial system.

The New York Times in May had an in-depth report on how people in that nation have been using bitcoin to circumvent bad government policy.

His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina…to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. …Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. …before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s.

Why are so many people interested in bitcoin?

Because the government is debasing and manipulating the official currency in ways that indirectly steal from the citizenry.

Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks.

And don’t forget that Argentina’s government is one of the nations with a track record of stealing money when it’s left in banks.

Commerce of this sort has proved useful enough to Argentines that Castiglione has made a living buying and selling Bitcoin for the last year and a half. …The money brought to Argentina using Bitcoin circumvents the onerous government restrictions on receiving money from abroad. …It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations. Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

Bitcoin protects consumers from rapacious and feckless politicians.

…in the fall of 2012, when the Argentine government ordered PayPal to bar direct payments between Argentines, part of the government’s effort to slow the exchange of pesos into other currencies. …Argentines were using Bitcoin to circumvent the government’s restrictions. “…competition eliminates all currencies from noneffective governments,” it said… In Argentina, the banks refuse to work with Bitcoin companies like Coinbase, which isn’t surprising, given the government’s tight control over banks. This hasn’t deterred Argentines, long accustomed to changing money outside official channels.

In an ideal world, of course, there would be no need for bitcoin. At least not as a hedge against bad government policy (if a world of private monies, of course, cryptocurrencies presumably would be one of the market-based options).

But we don’t live in an ideal world. Some of us already live in nations where government financial and/or monetary policy make bitcoin a very important alternative.

And others of us live in countries where there is good reason to worry about future instability because of misguided fiscal, monetary, and economic policy. So it will be good if we have options such as bitcoin.

That doesn’t mean, to be sure, that the average person should transfer all their liquid wealth into bitcoin. Indeed, I’ve specifically stated that “I wouldn’t put my (rather inadequate) life savings in bitcoin.

But I certainly want that option if future events warrant a change of strategy.

P.S. If you’re in a patriotic mood (and if you like the Second Amendment), then you’ll definitely enjoy this slideshow.

P.P.S. If you enjoyed the six-frame image about bitcoin owners, you’ll probably like a similar image portraying libertarians.

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Okay, the title of this post is a huge overstatement. I’ve already noted here that Argentina is not a good role model and warned here how that Obama is repeating many of the mistakes that undermined Argentinian prosperity.

But I’m nonetheless impressed that Argentina actually allows people at the Lujan Zoo to freely choose whether to enter cages with potentially deadly animals.

Here at the Lujan Zoo near Buenos Aires visitors can ride lions, cuddle bears, stroke tigers and feed cheetahs. Cages are accessible to everyone who paid $50 and signed the paper saying that if you are eaten, the Zoo is not responsible. Lujan Zoo is about 50 miles from from Buenos Aires, has an entrance fee of just £5. Visitors can even pick up the smaller animals and manhandle them at risk to themselves and the creatures. Shockingly there doesn’t appear to be much in the way of safety regulations.

I would probably be a wimp if I went to this zoo, so I would limit myself to the lion cubs or something like that. But I support the right of other people to engage in risky behavior

(h/t: Marginal Revolution)

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Welcome Instapundit readers. Thanks, Glenn.

After reading below about Argentina’s decline, several people have emailed to ask how Chile compares. Ask and ye shall receive. This post from last month shows shows Chile, Argentina, and Venezuela. Very powerful, which is why I gave the post such a grandiose title.

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There’s been a lot of coverage of the recent decision by Standard & Poor to warn that the United States has a “negative” outlook.

As Joe Biden would say, BFD. I’m stunned that anyone would care, particularly since the rating agencies have zero credibility. These clowns completely missed Enron. They missed the collapse of Europe. They blew it on the financial crisis, especially with regard to the corrupt government-created mess at Fannie Mae and Freddie Mac.

The fact that one of the rating agencies belatedly warns that America is heading in the wrong direction should elicit only one response, which is, “Where were you guys when Bush did no-bureaucrat-left-behind, the prescription drug entitlement and TARP? And where were you guys when Obama did the faux stimulus and government-run healthcare?”

One of the problems with the rating agencies in this regard is that they narrowly focus on the ostensible ability of an institution (such as a company or government) to repay debt. That’s an important consideration, especially if you are a bondholder, but (even if the rating agencies did a good job) it doesn’t tell us much about why a government is in good shape or bad shape.

This story – and the failure to recognize what’s truly important – is doubly irritating to me since I’m in Buenos Aires for the Mont Pelerin Society meetings. Many of the speakers have focused on the challenges in Latin America, with a lot of attention focused on what went wrong with Argentina.

If I was forced to compress all the analysis into one brief answer, the problem is crony capitalism. Argentina’s economy, for all intents and purposes, is one giant Fannie Mae/Freddie Mac/Obamacare/General Motors/Goldman Sachs Obamaesque dystopia. Government has enormous influence over every major economic decision. It’s like being in the middle of Atlas Shrugged, as political connections are the way to get rich.

This type of approach is far worse than the Scandinavian welfare state. Yes, the official size of government is bigger in places such as Sweden, but the negative role of government intervention is far more pervasive in Argentina.

What makes this so tragic is that Argentina used to be one of the world’s wealthiest countries. Last night, I had the privilege of listening to one of the nation’s leading free market advocates, Dr. Ricardo H. López Murphy, talk about Argentina’s history. In the 1800s and early 1900s, Argentina looked to the United States for inspiration (back in the days when government was a far smaller burden) and he noted that his country was remarkably successful.

Then, beginning around the 1940s, Argentina began to march in the wrong direction. As you can see from this chart, the consequences have been tragic. The nation’s relative ranking has declined precipitously. A country that used to be one of the world’s richest has now fallen way behind.

I also put Hong Kong on this chart to give further evidence that policy matters. Argentina has pursued an Obama policy of government intervention and has declined. Hong Kong has practiced laissez-faire economics and now is one of the world’s richest jurisdictions.

This is a warning to America. There is nothing magical about the United States. If we copy Argentina (actually, a very bad combination of Argentine-style crony capitalism and Swedish-style high-tax redistribution), we will suffer similar consequences.

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Okay, the title’s an exaggeration, but this chart is rather revealing. It shows how per-capita GDP has changed between 1980 and 2008 in Chile, Argentina, and Venezuela.

As you can see, Chile used to be the poorest of the three countries and now it is comparatively rich. Argentina has enjoyed a bit of growth. Venezuela, by contrast, used to be the richest of the three nations but has stagnated and now is in last place.

So what accounts for these remarkable changes in relative prosperity? The answer, at least in part, is the difference between free markets and statism. Simply stated, Chile has reduced the burden of government a lot in the past three decades, Argentina has reduced the burden of government a little, and Venezuela has gone in the wrong direction and increased the burden of government.

The following numbers come from the Economic Freedom of the World, which looks at all facets of economic policy, including regulation, trade policy, monetary policy, fiscal policy, rule of law, and property rights.

* Chile’s score jumped from 5.6 in 1980 to 8.0 in 2008, and the country now ranks as the world’s 4th-freest economy (ahead of the United States!).

* Argentina’s ranking has improved a bit, rising from 4.4 to 6.0 between 1980 and 2008, but that still only puts them in 94th-place in the world rankings.

* Venezuela, by contrast, is embarrassingly bad. The nation’s score has dropped from 6.3 to 4.4, and its ranking has plunged from 22nd-place in 1980 to 121st-place in 2006.

The simple lesson is that nations have the ability to create prosperity, but they have to follow a simple recipe. Adam Smith is reported to have written several hundred years ago that, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice.”

Since Adam Smith probably never imagined a world filled with things such as OSHA, the Department of Energy, the IRS, agriculture subsidies, and fiat money, his recipe might be a bit dated, but the general idea still holds.

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I hope the title to this blog post is completely wrong, but the news out of Europe is very grim. Politicians have been over-spending and going deeper and deeper into debt. This negatively affects the private sector in the usual ways (higher taxes, unproductive allocation of resources, etc), but also creates instability in the financial sector since many banks and other institutions have naively lent lots of money to corrupt and inefficient governments. And as this story from the Telegraph indicates, the European Central Bank has been forced to surrenders its independence and is now monetizing government debt. In theory, the ECB is taking other steps to compensate, but the problem is so large (and the political willingness to solve the problem by radically shrinking government is so small) that it is difficult to see a good ending to this saga.

Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe’s sovereign debt crisis escalating out of control. …The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU’s `shock and awe’ package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn). It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer. ECB council member Jose Manuel Gonzalez-Paramo said it was “not entirely correct” to assume that the ECB was the sole buyer of the debt. “We will continue buying bonds until the situation has stabilized,” he said. …Fitch said European banks must refinance nearly €2 trillion of long-term debt by the end of 2012 in an unfriendly market. “There’s an awful lot of debt coming due in 2011 and 2012, and that is becoming a concern,” said Bridget Gandy, the agency’s banking expert.

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In an amusing coincidence, Secretary of State Hillary Clinton and I were both in Latin America this week offering fiscal policy advice. But it won’t surprise you to know that Mrs. Clinton’s suggestions are radically different than the advice I provided. She spoke in Ecuador and, according to an AFP report, said it was time for “the wealthy across the Americas to pay their ‘fair share’ of taxes in order to eliminate poverty and promote economic opportunity for all.” She also claimed that “her appeal to overhaul tax systems did not amount to ‘class warfare’ and was instead a recognition that the ‘winner-take-all-approach’ was a drag on progress.” The AFP story concludes with Mrs. Clinton asserting, “We can’t mince words about this. Levels of tax evasion are unacceptably high,”

By contrast, in my remarks to the Fundacion Libertad in Panama and in my speech to the Chamber of Commerce in El Salvador, I explained that academic research shows that better tax compliance is best achieved by lowering tax rates and eliminating inefficient and corrupt spending programs so that taxpayers have more confidence that their money is not being wasted. But let’s touch on something even more important than economics. I also made a moral argument about the danger of giving national tax authorities too much power and information – especially in a region where governments oftentimes are the source of oppression, expropriation, and tyranny. Simply stated, there are some things that are more important than obeying tax laws. This Center for Freedom and Prosperity video explains that so-called tax havens are an extremely important refuge for people who are subject to persecution and other forms of government malfeasance.

Let’s consider some Latin American examples. Imagine a political dissident in Venezuela. Hugo Chavez has turned that country into a thugocracy and opponents of his sinister regime are vulnerable to having their assets expropriated (and worse). Thankfully, many Venezuelans are able to protect themselves from socialist tyranny by putting their money in Cayman, Panama, or Miami (the U.S. is a tax haven for non-U.S. people). But if Mrs. Clinton got to make the rules, tax havens would no longer exist and Chavez would be empowered.

Or what about families in Mexico, who rightfully are afraid that if they keep their money in the country and report it on their tax returns, corrupt bureaucrats in the national tax office will sell their names to criminal gangs and suddenly their children will be kidnapped and they will have to deal with the horror of getting a ransom note accompanied by a child’s finger. Fortunately, many Mexicans can guard against this horrific possibility by placing their assets in Cayman, Panama, or Miami. But in Mrs. Clinton’s ideal world, those options would not exist and many more people would experience the nightmare of vicious crime.

And consider the plight of Argentinians. A few years ago, the nation’s venal government stole the private pension assets of the people. This is in addition to radical currency devaluations that have wiped out a big chunk of people’s savings. Prudent Argentinians have avoided these forms of back-door thievery by moving funds to Cayman, Panama, and Miami. In the Orwellian world envisioned by Mrs. Clinton, however, tax havens wouldn’t exist and governments would have carte blanche to engage in bad policy.

This is not the first indication of Mrs. Clinton’s government-über-alles mindset as Secretary of State. Let’s remember that she urged class-warfare tax policy for Pakistan and more recently said Brazil was a role model for soak-the-rich tax policy (a strange assertion since the top tax rate there is only 27.5 percent). If nothing else, at least we can give her credit for being consistent.

But if I have to choose between Mrs. Clinton’s consistent statism and protecting the liberty and freedom of oppressed and persecuted people, it’s no contest. Politicians and senior government appointees all over the world act as if folks in the private sector are nothing more than serfs and peasants who have an obligation to pay ever-higher tax burdens, so we should be happy that so-called tax havens offer a refuge – even if we don’t live in failed states such as Venezuela, Mexico, and Argentina. Actually, since Obama is trying to turn us into Greece, maybe this issue will be important for Americans even sooner than we think.

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I meant to write about this article when it first came out, but it got buried in my inbox. That being said, this Washington Times column by Richard Rahn makes an excellent point about the dangers of too much government. He points out that Argentina used to one of the world’s most prosperous nations. Unfortunately, decades of statism have taken a harsh toll and the Latin American nation now is an economic basket case. Between Bush and Obama, we’ve had about 10 years of bad policy, so it would require lots of additional bad policy to drag America down to the Argentine level, but the trend is definitely in that direction:

A century ago, if you had told typical citizens of Argentina (which at that time was enjoying the fourth-highest per capita income in the world) that it would decline to become just the 76th richest nation on a per capita basis in 2010, they probably would not have found it believable. They might have responded, “This could not happen; we are a nation rich in natural resources, with a great climate for agriculture. Our people are well educated and largely descended from European stock. We have property rights, the rule of law and an open free-market economy.” But the fact is, Argentina has been going downhill for eight decades, and it has the second-worst credit ranking in the entire world – only Venezuela has a lower ranking. Argentina, despite its natural resources and human capital, has managed to throw it all away. Argentina did not become relatively poor because of having been involved in destructive conflicts. It became poor because it has had a series of both democratically elected leaders and non-elected dictators who never missed an opportunity to make the wrong economic decisions. …The U.S. is not yet Argentina, but, if many of the policies of the Obama administration are not reversed, America will only get poorer and, in as little as 30 years, become a middle-income country, while dozens of other countries will enjoy a higher standard of living.

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